Multifamily Remains a Smart Play Despite Growing Questions and Challenges

by | 13 December 2016

Multifamily has been among the hottest asset classes through the post-financial crisis recovery. So naturally, the question on investors’ minds today is whether the multifamily cycle has peaked.

Our short answer is “no.” As our 2016 Multifamily Spotlight Report explores, the longer answer is that future improvements in multifamily fundamentals and pricing are likely to slow to more normal levels, but we do see demand for apartments in the U.S. remaining strong. While supply has risen from cyclical lows, we expect capital market forces will keep vacancy rates from rising significantly.

Key takeaways from the report

  • Population growth and social trends such as urbanization, falling homeownership rates, later marriage and lower birth rates create long-term unique structural advantages for the multifamily sector.
  • Occupancy rates are near historical highs. While we expect them to drop slightly, market conditions will likely remain fundamentally sound.
  • Capitalization rates for apartments averaged 5.4 percent in Q3 2016, the lowest of any property type, reflecting strong investor confidence in these assets.
  • Rents have risen much higher than household incomes in recent years and some of the more expensive markets are nearing the limit of what renters can bear.
  • While the rate of multifamily growth is expected to slow, we believe supply-demand fundamentals and capital market forces will remain favorable for some time.

To learn more, download the full 2016 Multifamily Spotlight Report.

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